Bidders eye parts of Aryzta as ‘all strategic options’ on table after €1.1bn loss

Aryzta’s new chairman said the baked goods group has received bid approaches for parts of the company since he was installed three weeks ago under a boardroom coup, and has vowed to explore “all strategic options” as the business posted a €1.1 billion annual loss.*

Urs Jordi, who said on his appointment as chairman on September 16th that now is "the worst time" for a sale, has set up a board committee to consider options, including a full sale and additional asset disposals to slim down a company that grew rapidly through deals in the decade after it was formed by a merger in 2008.

Mr Jordi revealed that the previous board, headed by Irish corporate grandee Gary McGann, was advised in July by investment bankers at Rothschild to put the entire business up for sale, after they carried out a strategic review of its operations.

Brand

Aryzta, owner of the Cuisine de France brand in Ireland and a supplier internationally to the likes of McDonalds, Subway and Lidl, said on September 10th that it was in advanced takeover talks with a unit of US hedge fund Elliott Management.

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Mr Jordi said on Tuesday that in addition to the Elliott talks, the company has received unsolicited bid interest in parts of the group since he became chairman.

The group posted a €1.09 billion net loss for its financial year through July, driven by €988 million of impairment charges against assets, mainly in its troubled North American operation, and losses on businesses being sold.

The result was also affected as sales, especially to catering customers, slid amid widespread Covid-19 lockdowns earlier this year, resulting in underlying earnings before interest, tax, depreciation and amortisation (Ebitda) dropping 15.4 per cent to €260 million.

Group chief executive Kevin Toland saw his pay package fall by more than 50 per cent to 2.14 million Swiss francs (€2 million) as he took a three-month salary cut, received no cash bonuses, and saw share awards under a long-term incentive plan (LTIP), convertible into stock after three years, more than halve to 1.06 million Swiss francs.

Impact

“Covid-19 has had a material impact on Aryzta’s /[financial-year 2020/] results. Nevertheless, the company has kept a strong liquidity position through the crisis and at year-end,” said Mr Jordi.

“We will explore all strategic options available, internal and external, acting in the best interests of Aryzta and its stakeholders, and in this process we will continue to evaluate all unsolicited expressions of interest received.”

Mr Jordi said he was “fully convinced that Aryzta has great potential and we will do our utmost to put the company back on the road to success”.

At an extraordinary general meeting in Zurich on September 16th, the rebel shareholders, led by Swiss investor Veraison, secured backing from voters for Mr Jordi and two other of their candidates to join the board. The company’s three former Irish directors, including Mr McGann, as well as one Swiss board member signalled they were stepping down before the meeting.

The previous board of Aryzta announced on May 13th that it had hired investment bank Rothschild to carry out a “strategic review” of the business – the same day that the rebel shareholders declared they had joined forces to press for change.

This ultimately led to unsolicited bid approaches, including the one from Elliott, which is led by US billionaire Paul Singer.

Markets

Mr Jordi told the meeting “it would be the worst point in time to sell the company right now”. However, he promised on Tuesday that the new strategic committee, comprised of the three new board members and two existing directors, will look at all options carefully and give updates “in a timely manner”.

As part of its work, the committee will look at what should be core businesses and markets for Aryzta.

When asked by analysts on a conference call if the LTIP may give rise to potential conflicts of interest - as all unvested share awards would ordinarily convert immediately in the event of a takeover - Mr Jordi said that the group is examining the plans.

Retail

Group sales were down 49 per cent in April, the height of Covid-19 lockdowns, compared to the same month last year, but had recovered to be 18 per cent lower on an annual basis in July. Sales have continued to recover since then, driven by retail and sales to quick-service restaurants, while catering revenues remain subdued.

While a number of countries across Europe have introduced tighter restrictions amid second waves of the pandemic in recent times, Mr Toland said sales have not been impacted as governments have so far avoided reintroducing full lockdowns. *This story was corrected from an earlier version, to reflect that the chairman was talking about bid approaches for parts of Aryzta, in addition to talks for outright sale to to a unit of Elliott Management